Home sales hit hard

Bloomberg

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U.K. home sales declined to the lowest level in at least three decades and the lending freeze pushed down prices for a 15th month, the Royal Institution of Chartered Surveyors said.

Real-estate agents and surveyors sold an average of 10.9 homes in the quarter through October, the least since the series began in 1978, RICS said yesterday. The percentage of agents saying prices dropped exceeded those reporting gains by 82 points, an indicator that has been negative since August 2007. A separate report showed retail sales fell for the first time since 2005.

The Bank of England cut the benchmark interest rate to the lowest since 1955 last week to help the economy through the biggest slump since the early 1990s. The reduction prompted mortgage lenders to bow to pressure from Prime Minister Gordon Brown to lower borrowing costs for their customers.

“Last week's interest-rate cut should certainly help to support the market now that lenders have agreed to pass on the reduction,” said Ian Perry, a spokesman for RICS. “Even so,the general lack of mortgage finance remains a major blockage in the housing market for a large majority of would-be buyers.”

House prices fell 5.1 percent in September from a year earlier after a drop of 4.6 percent in August, a separate report by the Department of Communities and Local Government showed.

Prices extended declines in all 12 of the regions monitored by RICS. The balance of agents reporting falling values to increases was minus 100 in the North and minus 90 in London, RICS said.
 
No recovery yet
“We remain of the view that there will not be a recovery in the U.K. housing market in the short term,” said homebuilder Taylor Wimpey today after reporting a 40 percent drop in orders.

The weakening property market and rising unemployment are encouraging shoppers to spend less. Retail sales fell an annual 2.2 percent in October, the first drop since April 2005, the British Retail Consortium said yesterday.

Lenders, faced with the need to increase capital on their balance sheets, are paring loans to households. Mortgage approvals stayed close to a record low in September and consumer credit rose at the weakest pace since 1993, the central bank reported on Oct. 29.

Brown is now urging banks to lend more after his government last month took controlling stakes in HBOS and Royal Bank of Scotland Group in a 37-billion pound ($58 billion) rescue.

While the European Commission forecasts the U.K. will be the worst performer among advanced industrialized countries next year, the pound's decline against the euro and the dollar may ease the slowdown by helping exports.

Britain's trade deficit narrowed more than economists forecast in September to 7.5 billion pounds ($11.7 billion) after exports jumped 2.9 percent and imports were little changed. The pound has dropped 6 percent against a basket of currencies from its major trading partners in the past two months.

For now, the housing market is continuing to deteriorate, dragging down growth prospects. HBOS said last week that prices fell an annual 15 percent last month, the most since the survey began in 1983. Taylor Wimpey said the building industry is starting to price properties “competitively,” putting further pressure on values.

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